We'll now learn how a long
history of legacy systems and outdated methods holds companies back from their
potential around new total spend management optimization. The payoffs on gaining such a full and data-rich
view of spend patterns across services, hiring, and goods includes reduced
risk, new business models, and better strategic decisions.

Hofler: After years
of grabbing best-of-breed or niche solutions for various parts of the source-to-pay
process, companies are reaching the limits of this siloed approach. Companies
are now being asked to look at their vendor spend as a whole. Whereas before
they would look just at travel and expense vendors, or services procurement, or
indirect or direct spend vendors, chief procurement and financial officers now want
to understand what’s going on with spend holistically.

And, in fact, from the IDC report you mentioned, we found that 53 percent of respondents use different
applications for each type of vendor spend that they have. Sometimes they even use
multiple applications within a process for specific types of vendor spend. In
fact, we find that a lot of folks have cobbled together a number of different
things -- from in-house billing to niche vendors – to keep track of all of that.

Managing all of that when
there is an upgrade to one particular system -- and having to test across the
whole thing -- is very difficult. They also have trouble being able to reconcile
data back and forth.

One of our competitors, for
example -- to show how this Frankenmonster approach has taken root -- tried
to build a platform of every source and category of spend across the entire source-to-pay
process by acquiring 14 different companies in six years. That creates a patchwork
of applications where there is a skim of user interfaces across the top for
people to enter, but the data is disconnected. The processes are disconnected.
You have to manage all of the different code bases. It’s untenable.

Gardner: There
is a big technology component to such a patchwork, but there’s a people level
to this as well. More-and-more we hear about the employee experience and trying
to give people intelligent tools to make higher-level decisions and not get
bogged down in swivel-ware and cutting and pasting between apps. What do the survey
results tell us all about the people, process, and technology elements of total
spend management?

Unified data reconciliation

Hofler: It
really is a combination of people, process, and technology that drives intelligent
spend. It’s the idea of bringing together every source, every category, every
buying channel for all of your different types of vendor spend so that you can
reconcile on the technology side; you can reconcile the data.

For example, one of the things
that we are building is master vendor unification across the different types of
spend. A vendor that you see -- IBM, for
example -- in one system is going to be the same as in another system. The data
about that vendor is going to be enriched by the data from all of the other
systems into a unified platform. But to do that you have to build upon a
platform that uses the same micro-services and the same data that reconciles across
all of the records so that you’re looking at a consistent view of the data. And
then that has to be built with the user in mind.

So when we talk about every
source, category, and channel of spend being unified under a holistic
intelligent spend management strategy, we are not talking about a monolithic
user experience. In fact, it’s very important that the experience of the user
be tailored to their particular role and to what they do. For example, if I
want to do my expenses and travel, I don’t want to go into a deep, sourcing-type
of system that’s very complex and based on my laptop. I want to go into a mobile
app. I want to take care of that really quickly.

If
I'm sourcing some strategic suppliers I certainly can't do that on just
a mobile app. I need data, details, and analysis. And that's why we
have built the platform underneath it all to tie this together.

On the other hand, if I’m
sourcing some strategic suppliers I certainly can’t do that on just a mobile
app. I need data, details, and analysis. And that’s why we have built the
platform underneath it all to tie this together even while the user interfaces and
the experience of the user is exactly what they need.

When we did our spend
management survey with IDC, we had more than 800 respondents across four
regions. The survey showed a high amount of dissatisfaction because of the wide-ranging
nature of how expense management systems interact. Some 48 percent of
procurement executives said they are dissatisfied with spend management today.
It’s kind of funny to me because the survey showed that procurement itself had
the highest level of dissatisfaction. They are talking about their own processes.
I think that’s because they know how the sausages are being made.

Gardner: Drew,
this dissatisfaction has been pervasive for quite a while. As we examine what
people want, how did the survey show what is working? What gives them the data
they need, and where does it go next?

Let go of patchwork

Hofler: What
came out of the survey is that part of the reason for that dissatisfaction is
the multiple technologies cobbled together, with lots of different workflows. There
are too many of those, too much data duplication, too many discrepancies
between systems, and it doesn’t allow companies to analyze the data, to really
understand in a holistic view what’s going on.

In fact, 47 percent of the
procurement leaders said they still rely on spreadsheets for spend analysis,
which is shocking to me, having been in this business for a long time. But we are
much further along the path in helping that out by reconciling master data
around suppliers so they are not duplicating data.

It’s also about tying together,
in an integrated and seamless way, the entire process across different systems.
That allows workflow to not be based on the application or the technology but
on the required processes. For example, when it comes to installing some parts
to fix a particular machine, you need to be able to order the right parts from
the right suppliers but also to coordinate that with the right skilled labor
needed to install the parts.

If you have separate systems for
your services, skilled labor, and goods, you may be very disconnected. There
may be parts available but no skilled labor at the time you need in the area
you need. Or there may be the skilled labor but the parts are not available from
a particular vendor where that skilled labor is.

What we’ve built at SAP is the
ability to tie those together so that the system can intelligently see the needs,
assess the risks such as fluctuations in the labor market, and plan and time that
all together. You just can’t do that with cobbled together systems. You have to
be able to have a fully and seamlessly integrated platform underneath that can
allow that to happen.

Gardner: Drew,
as I listen to you describe where this is going, it dovetails with what we hear
about digital transformation of businesses. You’re talking not just about goods
and services, you are talking about contingent labor, about all the elements that
come together from modern business processes, and they are definitely
distributed with a lifecycle of their own. Managing all that is the key.

Now that we have many different
moving parts and the technology to evaluate and manage them, how does holistic
spend management elevate what used to be a series of back-office functions into
a digital business transformation value?

Hofler:Intelligent
spend management makes it possible for all of the insights that come from
these various data points -- by applying algorithms, machine learning (ML), and
artificial intelligence (AI) -- to look at the data holistically. It can then pull
out patterns of spend across the entire company, across every category, and it allows
the procurement function to be at the nexus of those insights.

If you think of all the spend
in a company, it’s a huge part of their business when you combine direct, indirect,
services, and travel and expenses. You are now able to apply those insights to
where there are the price fluctuations, peaks and valleys in purchasing, versus
what the suppliers and their suppliers can provide at a certain time.

It’s an almost infinite amount
of data and insights that you can gain. The procurement function is being asked
to bring to the table not just the back-office operational efficiency but the
insights that feed into a business strategy and the business direction. It’s
hard to do that if you have disconnected or cobbled-together systems and a
siloed approach to data and processes. It’s very difficult to see those
patterns and make those connections.

But when you have a common
platform such as SAP provides, then you’re able to get your arms around the
entire process. The Chief Procurement Officer (CPO) can bring to the table
quite a lot of data and the insights and that show the company what they need
to know in order to make the best decisions.

Gardner: Drew,
what are the benefits you get along the way? Are there short-, medium-, and
long-term benefits? Were there any findings in the IDC survey that alluded to
those various success measurements?

Common platform benefits

Hofler: We found
that 80 percent of today’s spend managers’ time is spent on low-level tasks
like invoice matching, purchase requisitioning, and vendor management. That came
out of the survey. With the tying together of the systems and the intelligence
technologies infused throughout, those things can be automated. In some cases,
they can become autonomous, freeing up time for more valuable pursuits for the
employees.

New technologies can also help,
like APIs for ecosystem solutions. This is one of the great short-term benefits
if you are on an intelligent spend management platform such as SAP’s. You
become part of a network of
partners and suppliers. You can tap into that ecosystem of partners
for solutions aligned with core spend management functions.

Celonis, for example, looks at all of your
workflows across the entire process because they are all integrated. It can see
it holistically and show duplication and how to make those processes far more
efficient. That’s something that can be accessed very quickly.

Longer-term,
companies gain insights into the ebbs and flows of spending, cost, and
risk. They can begin to make better decisions on who to buy from based
on many criteria. They can better choose who to buy from. They start to
understand the risks across entire supply chains.

Longer-term, companies gain
insights into the ebbs and flows of spending, cost, and risk. They can begin to
make better decisions on who to buy from based on many criteria. They can better
choose who to buy from. They can also in a longer-term situation start to
understand the risks involved across entire supply chains.

One of the great things about
having an intelligent spend platform is the ability to tie in through that
network to other datasets, to other providers, who can provide risk information
on your suppliers and on their suppliers. It can see deep into the supply chain
and provide risk analytics to allow you to manage that in a much better way. That’s
becoming a big deal today because there is so much information, and social
media allows information to pass along so quickly.

When a company has a problem
with their supply chain -- whether that’s reputational or something that their
suppliers’ suppliers are doing -- that will damage their brand. If there is a
disruption in services, that comes out very quickly and can very quickly hit
the bottom line of a company. And so the ability to moderate those risks, to
understand them better, and to put strategies together longer term and
short-term makes a huge difference. An intelligent spend platform allows that to happen.

Gardner:
Right, and you can also start to develop new business models or see where you
can build out the top line and business development. It makes procurement not just
about optimization, but with intelligence to see where future business
opportunities lie.

Comprehend, comply, control

Hofler:
That’s right, you absolutely can. Again, it’s all about finding patterns, understanding
what’s happening, and getting deeper understanding. We have so much data now. We
have been talking about this forever, the amount of data that keeps piling up.
But having an ability to see that holistically, have that data harmonized, and
the technological capability to dive into the details and patterns of that data
is really important.

And that data network has, in
our case, more than 20 years’ worth of spend data, with more than $13 trillion in
lifetime of spend data and more than $3 trillion a year of transactions moving
through our network – the Ariba
Network. So not only do companies have the technologies that we provide in
our intelligent spend management platform to understand their own data, but
there is also the capability to take advantage of rationalized data across
multiple industries, benchmarks, and other things, too, that affect them outside
of their four walls.

So that’s a big part of what’s
happening right now. If you don’t have access into those kinds of insights, you
are operating in the dark these days.

Gardner: Are
there any examples that illustrate some of the major findings from the IDC
survey and show the benefits of what you have described?

Hofler:Danfoss, a Danish company, is a customer
of ours that produces heating and cooling drives, and power solutions; they are
a large company. They needed to standardize disparate enterprise
resource planning (ERP) systems across 72 factories and implement services
for indirect spend control and travel across 100 countries. So they have a very
large challenge where there is a very high probability for data to become
disconnected and broken down.

That’s really the key. They were
looking for the ability to see one version of truth across all the businesses,
and one of the things that really drives that need is the need for compliance. If
you look at the IDC survey findings, close to half of executive officers are
particularly concerned with compliance and auditing in spend management policy.
Why? Because it allows both more control and deeper trust in budgeting and
forecasting, but also because if there are quality issues they can make sure they
are getting the right parts from the right suppliers.

The capability for Danfoss to
pull all of that together into a single version of truth -- as well as with
their travel and expenses -- gives them the ability to make sure that they are
complying with what they need to, holistically across the business without it
being spotty. So that was one of the key examples.

Another one of our customers, Swisscom, a telecommunications
company in Switzerland, a large company also, needed intelligent spend management
to manage their indirect spend and their contingent workforce.

They have 16,000 contingent
workers, with 23,000 emails and a couple of thousand phone calls from suppliers
on a regular basis. Within that supply chain they needed to determine supplier
selection and rates on receipt of purchase requisitions. There were questions
about supplier suitability in the subsequent procurement stages. They wanted a
proactive, self-service approach to procurement to achieve visibility into that,
as well as into its suppliers and the external labor that often use and install
the things that they procure.

By
moving from a disconnected system to the SAP intelligent spend
offering, they were able to gain cohesive information and a clear view
of their processes -- consumer, supplier, procurement, and end-user
services.

So, by moving from a
disconnected system to the SAP intelligent spend offering, they were able to gain
cohesive information and a clear view of their processes, which includes those
around consumer, supplier, procurement, and end user services. They said that
using this user-friendly platform allowed them to quickly reach compliance and
usability by all of their employees across the company. It made it very easy
for them to do that. They simplified the user experience.

And they were able to link
suppliers and catalogs very closely to achieve a vision of total intelligent spend
management using SAP Fieldglass and SAP Ariba. They said they transformed
procurement from a reactive processing role to one of proactively controlling
and guiding, thanks to uniform and transparent data, which is really
fundamental to intelligent spend.

Gardner:
Before we close out, let’s look to the future. It sounds like you can do so
much with what’s available now, but we are not standing still in this business.
What comes next technologically, and how does that combine with process
efficiencies and people power -- giving people more intelligence to work with?
What are we looking for next when it comes to how to further extend the value
around intelligent spend management?

Harmony and integration ahead

Hofler: Extending
the value into the future begins with the harmonization of data and the
integration of processes seamlessly. It’s process-driven, and it doesn’t really
matter what’s below the surface in terms of the technology because it’s all
integrated and applied to a process seamlessly and holistically.

What’s coming in the future on
top of that, as companies start to take advantage of this, is that more
intelligent technologies are being infused into different parts of the process.
For example, chatbots and the ability for users to interact with the system in
a natural language way. Automation of processes is another example, with the capability
to turn some processes into being fully autonomous, where the decisions are based
on the learning of the machines.

The user interaction can then become
one of oversight and exception management, where the autonomous processes take over
and manage when everything fits inside of the learned parameters. It then brings
in the human elements to manage and change the parameters and to manage
exceptions and the things that fall outside of that.

There is never going to be removal
of the human, but the human is now able with these technologies to become far
more strategic, to focus more on analytics and managing the issues that need
management and not on repetitive processes that can be handled by the machine.
When you have that connected across your entire processes, that becomes even
more efficient and allows for more analysis. So that’s where it’s going.

Plus, we’re adding more
ecosystem partners. When you have a networked ecosystem on intelligent spend, that
allows for very easy connections to providers who can augment the core intelligent
spend functions with data. For example, for attaining global tax, compliance,
risk, and VAT rules through partners like American Express and Thomson Reuters. All of these
things can be added. You will see that ecosystem growing to continue to add
exponential value to being a part of an intelligent spend management platform.

Gardner: There
are upcoming opportunities for people to dig into this and understand it and find
the ways that it makes sense for them to implement, because it varies from
company to company. What are some ways that people can learn details?

Hofler: There
is a lot coming up. Of course, you can always go to ariba.com,
fieldglass.com or sap.com and find out
about our intelligent spend management offerings. We will be having our SAP Ariba Live
conference in Las Vegas in March, and so tons and tons of content there, and
lots of opportunity to interact with other folks who are in the same situation
and implementing these similar things. You can learn a lot.

We are also doing a webinar
with IDC to dig into the details of the survey. You can find information about
that on ariba.com, and certainly if you are
listening to this after the fact, you can hear the recording of that on ariba.com and download the report.